“Today – is greatness possible?”
- Nietzsche
We don’t wake up at the top of the risk management morning to be average. We’re here to grind and get into the flow of both the data and the deliberate study of the #process.
Flow Science is something Steven Kotler got me into in The Art of Impossible – A Peak Performance Primer. I had no idea that “Nietzsche was the original high-performance philosopher” but I enjoyed how Kotler made the case!
“I teach you the Superman. Man is something that is to be overcome. What have you done to overcome him?”… “Nietzsche wrote these words in 1883, in his masterwork, Thus Spoke Zarathustra.” (pg 217)
Back to the Global Macro Grind…
After the 64th, 43rd, and 16th all-time closing highs of 2021 for SPY, NASDAQ, and the Russell 2000 (on Friday), welcome to another #Quad2 in Q4 Macro Monday @Hedgeye!
Let’s get after the measuring and mapping #process and start with the Global Currency market:
- US Dollar Index had its 2nd up week in 5 closing up +0.2% and continues to signal Bearish @Hedgeye TREND
- EUR/USD was +0.1% on the week and continues to signal Neutral @Hedgeye TREND
- Japanese Yen was +0.6% on the week but continues to signal Bearish TRADE and TREND vs. USD
- GBP/USD was the big mover/loser at -1.3% on the week, breaking bad back to Bearish @Hedgeye TREND
- Canadian Dollar corrected -0.6% vs. USD last week but remains Bullish TRADE and TREND
- Swiss Franc was up another +0.4% vs. USD to +1.8% in the last month and is also signaling Bullish TREND
The Bank of England (BOE) head-fake on a hawkish rate hike had a big short-term impact on both the Global FX and Rates markets. That said, the intermediate-term TREND signal for the UK 10yr Gilt Yield remains Bullish TREND.
Compounding the causal factor of the BOE’s market expectations mismatch was an epic short squeeze in the US Treasury market that largely had to do with off-side consensus positioning for a hawkish #Quad2 in Q4 (OCT) US Jobs Report:
A) The net SHORT position (CFTC futures/options contracts) in the UST 10yr note was -243,142 contracts… and
B) That scored a monster -3.5x on a 1yr z-score for the 10yr (one of its biggest moves relative to itself, ever)
With weekly US Jobless Claims slowing to multiple Cycle Lows in October, it didn’t take a data-driven genius to expect the big ROC (rate of change) #acceleration in US labor data. I guess all of the geniuses shorted TLT BEFORE the news!
I shorted long-term Treasuries (TLT) and Gold (GLD) after the short-squeeze news midday on Friday. Timing matters:
A) UST 10yr Yield was big time #oversold on Friday at 1.44% but is still +23bps in the last 3 months
B) Gold signaled immediate-term TRADE #overbought at $1821/oz within its Bearish @Hedgeye TREND
The other big macro factor that helped UST yields correct coming into the Jobs print was that Commodities, as an Asset Class, finally corrected last week:
- CRB Commodities Index corrected a whopping -1.1%, taking its 3-month Full Investing Cycle Return to +9.2%
- Oil (WTI) corrected -2.8% last week, taking its 3-month Full Investing Cycle Return to +19.8%
- Copper corrected -0.6% last week, taking its 3-month Full Investing Cycle Return to +0.2%
Copper has obviously been an outlier for the last 1-3 months as Commodity Inflation has continued to broaden:
A) Cotton inflated another +1.8% last week, taking its 3-month Full Investing Cycle Return to +25.3%
B) Lumber inflated +4.3% last week, taking its 3-month Full Investing Cycle Return to 12.4%
All the while, #Quad2 in Q4 US Equity Full Investing Cycle Returns continue to manifest across US Equity Sector Style and Factor Exposures:
A) SMALL CAP (Russell 2000) Factor Exposure ramped +6.1% on the week to +9.4% in the last month alone
B) Consumer Discretionary (XLY) ramped another +5.0% on the week to +17.3% in the last month alone
Consider the “alternatives” for the last 3 months:
A) Healthcare Stocks (XLV) at DOWN -0.7% last week, taking its 3-month Full Investing Cycle Return to -0.1%
B) Gold bouncing +1.8% last week, taking its 3-month Full Investing Cycle Return to +0.4%
And people wonder why some of these one-way-Macro storytellers (who have been long US Dollars and Gold) spend their waking hours on Twitter hating on me and my hockey flow? Lol
Instead of “going to USD Cash” in SEP they should have been buying the damn dip in Bitcoin back then and last week. Prior to yesterday’s moon shot back towards 66,000 (in US Dollars) its 3-month Full Investing Cycle Return is +49.1%!
On the Asia Long/Short Equity front, it was another great week with our China Short down another -1.6% on the week vs. our new Philippines (EPHE) Long +4.1% week-over-week.
In the last 3 months, Long China looks like being long something like Gold at only +0.7%. Greatness in Macro, that isn’t.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.44-1.67% (bullish)
UST 2yr Yield 0.38-0.53% (bullish)
SPX 4 (bullish)
RUT 2 (bullish)
NASDAQ 15,253-16,124 (bullish)
Tech (XLK) 158.80-168.26 (bullish)
Energy (XLE) 56.26-60.04 (bullish)
Financials (XLF) 39.60-41.01 (bullish)
Shanghai Comp 3 (bearish)
VIX 14.85-17.52 (bearish)
USD 93.19-94.51 (bearish)
EUR/USD 1.152-1.166 (neutral)
USD/YEN 113.10-114.41 (bullish)
GBP/USD 1.343-1.372 (bearish)
CAD/USD 0.801-0.813 (bullish)
USD/CHF 0.907-0.920 (bearish)
Oil (WTI) 78.90-86.14 (bullish)
Nat Gas 5.12-6.28 (bullish)
Gold 1 (bearish)
Copper 4.28-4.52 (bullish)
Bitcoin 59,374-66,950 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
